HHS Releases Final ACO Rules

Recently, the U.S. Department of Health and Human Services (HHS) unveiled the final rules to establish and govern Accountable Care Organizations (ACO) under the Patient Protection and Affordable Care Act (PPACA). The ACO concept is an integral part of PPACA’s health reforms and the federal government intends for ACOs to be a primary driver in controlling the cost of future Medicare benefits, among other benefits. The ACO concept has generated massive amounts of public commentary during the rulemaking process. 

What is an ACO?
An ACO is a mechanism that would allow physicians, hospitals and other health care providers to come together under an umbrella organization making them accountable for both the health of their patients and the cost of delivering care. The legislation creates a series of financial incentives to eliminate unnecessary health care procedures.  

Under the existing Medicare payment system, health care providers are paid for their services. The more services they provide, the more they are paid. The ACO concept allows for health care providers to jointly share in the savings created by delivering the right care in the right setting at the right time, without the perverse incentive of providing unnecessary tests or procedures. 

The ACO concept is designed to allow for a higher level of coordination of care and more efficiency in the back office functions of health care providers through the implementation of a single electronic health record for each patient. HHS estimates that as many as 150 ACOs could be formed by health care providers and approved by HHS.

When the interim final rules were released this past March, HHS Secretary Sebelius remarked, "We need to bring the days of fragmented care to an end. For way too long the federal government has been a bystander and in some cases a barrier, while others work to improve a health care delivery system that frustrates providers and fails patients." The 429 pages of interim final rules on the ACOs was met with considerable commentary and criticism. The general consensus was that the interim final rules were too difficult for most ACOs to comply with and thereby would create a chilling effect. HHS considered the public input and went back to the drawing board.  To read BenefitMall’s earlier legislative alert about the interim ACO rules, click here.

The Final ACO Rules
The final rules for ACOs were released by HHS and published in the Federal Register on November 8, 2011.The preamble takes up most of the 649 total pages. The preamble describes in considerable detail the original intent of the legislation and the interim final rules, the public commentary on the interim final rules, and alternatives that were considered. 

The final rules are a significant improvement over the prior interim guidelines. Improvements include:

• List of Beneficiaries. The new rules provide that Centers for Medicare and Medicaid Services (CMS) will give ACOs a list of “probable beneficiaries” eligible for care, with quarterly updates. Beneficiaries cannot “sign up” voluntarily but will be assigned according to whether ACO members are their primary care physicians or have provided other professional care.
• Shared Savings. Setting up ACOs will be expensive, but the rules offer a new “Advance Payments” option to ACOs lacking capital reserves or needing to cover short-term losses. ACOs will be allowed to share in every dollar of savings once minimum savings are achieved. The minimum savings will be based on the number of beneficiaries served without losing money. 
• Quality Metrics. The number of quality measures that ACOs will have to meet to qualify for bonuses was reduced from 65 to 33 with a longer phase-in, which appeals to most providers. ACOs will receive pay for reporting in year one, and pay for reporting and performance in years two to three.
• Financial Commitment. Health care organizations creating ACOs must commit to handling the costs and managing them appropriately.
• Physician-Hospital Alignment. The success of an ACO will, in large part, be measured by how physicians are engaged in the process as they align with hospitals since physicians are actively managing patient outcomes.
• Rural Health Centers. Community health centers and rural health clinics, which were left out of the prior proposed ACO rule, will be allowed to lead ACOs, bringing the benefits of accountable care to smaller areas.
• Timeline. CMS has relaxed the timeline, allowing health care organizations to apply for the launch of ACOs throughout 2012.

Waiver of Physician Self-Referral Provisions
Concurrent with the release of the final rule on ACOs, HHS and the Office of Inspector General (OIG) released interim final rules that waive the federal physician self-referral law and the anti-kickback statute. For a synopsis of this complex process, please go here.

Challenges Remain for ACOs
Initial comments from provider organizations were reserved, but positive. However, there are two major challenges that remain in place.  

The first challenge is the cost of creating the infrastructure necessary for the creation of an ACO. CMS estimates that it would cost $580,000 in startup costs and $1.2 million in working capital to operate an ACO. These estimates have proven to be optimistic. After having incurred the cost of establishing an ACO and raising the working capital, the ACO may not break even or make money if the organization does not generate savings and/or qualify for a bonus from CMS.

The greater challenge for those deciding whether or not to invest the time, effort and financial resources to form an ACO is that the promised “savings bonus” may not be worth the effort. As elaborated in the Remington Report:

“One basic problem remains – a problem that is built into the core of the Shared Savings Model: at best, the model permits an ACO to receive 60 percent of the savings that it created, with CMS taking the other 40 percent.

“To create a dollar in savings, the hospital or medical group must give up a dollar of Medicare revenue. This dollar of gross revenue would make a contribution to both the fixed costs of keeping the hospital or medical group operating and to the marginal cost of providing the service that, if provided, would gain the dollar of Medicare revenue for the organization. Each organization will have to decide whether the sixty cents in shared savings that it can, at most, receive is worth more than the dollar in gross revenue that it is giving up...Additionally, an ACO that chooses the second track (the track that permits it to receive 60 percent, rather than 50 percent, of savings generated), risks having to pay CMS a share of any costs that exceed the predicted costs for the ACO’s population of patients……

“In other words, the shared savings ‘bonus’ is not really a bonus. Under the program as designed even an efficient, high-quality ACO will gain less money from sharing in savings than it would have earned if it had simply continued with business as usual. And there is no real bonus for quality – at best, an ACO can receive the maximum amount of shared savings possible – i.e., at most 60 percent of the savings it created for CMS – but no additional funds for quality. This is a fundamental flaw in the design of the program – a flaw created by Congress, and which only Congress, not CMS, could remedy.”

Summary
The process of overhauling the nation’s health care delivery system is a massive undertaking. The extent of that effort is reflected in the thousands of pages of legislation and rules created by PPACA. The ACO concept is a critical component of the Administration’s efforts to contain the annual cost increases for health care. The final ACO rules represent a significant improvement over the interim final rules released last spring, but there is still work to be done before the ACO concept will deliver the cost containment promised by the authors of PPACA. It also will be interesting to see what, if any, role brokers will have in adding ACOs to their health offerings in the future.   

Here are some helpful resources:

• The Shared Savings Program final rule  (See Final Rule on Shared Savings Program: Accountable Care Organizations). 
• The Advanced Payment solicitation
• Fact sheets are posted here and here.   
• The joint CMS and Department of Health and Human Services Office of Inspector General (OIG) Interim Final Rule with Comment Period addressing waivers of certain fraud and abuse laws in connection with the Shared Savings Program can be found here.  (See Request for Public Comment on Final Waivers in Connection with the Shared Savings Program).
• The Antitrust Policy Statement is posted here and here. 
• The Internal Revenue Service (IRS) Fact Sheet, Tax-Exempt Organizations Participating in the Medicare Shared Savings Program through Accountable Care (FS-2001-11), is posted here. 

Please visit www.benefitmall.com to view past Legislative Alerts. Or, you may visit www.HealthcareExchange.com for blog posts, polls, surveys and numerous resources.

The views expressed in this Legislative Alert do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.